Method and system for analyzing a capital structure for a company

Abstract

Various embodiments of the present invention relate to methods and systems for analyzing a capital structure for a company (e.g., a public corporation). More particularly, one embodiment of the present invention relates to a decision making tool for analyzing a company's capital structure, which decision making tool may include: (1) Economic EPS, wherein Economic EPS and its volatility may capture the cost/risk trade-off of all fixed income and equity-related alternative capital structures; and (2) Capital Structure Efficient Frontier, wherein a company should strive to bring its capital structure to the efficient frontier of strategies with the highest EPS for given levels of EPS risk. Of note, the Economic EPS and the Capital Structure Efficient Frontier methodologies of the present invention provide a unifying framework in which to analyze a company's capital structure (e.g., for identifying and implementing the economically optimal solutions to a company's capital structure challenges). Apart from the global view of the company's capital structure, this framework can be used as a decision-making tool for analyzing and comparing specific restructuring transactions (including, but not limited to): new financing, share repurchase, liability management, bank capital optimization, and/or tax-driven hybrid equity issuance.

1. A method implemented by a programmed computer system for characterizing earnings of an entity, comprising:
 obtaining, at the computer system, data associated with the entity including a number of common shares outstanding, a value of earnings, a value of dividends per share, a value of coupon payments, and a change in the effective number of common shares outstanding, which change in the effective number of common shares outstanding reflects the possibility, based upon an economically reasonable analysis in light of market conditions including a value of a stock price associated with the entity, of conversion of a convertible security; 
 iteratively calculating, with the computer system, a plurality of values of earnings per share associated with the entity based upon the obtained data and by iteratively changing the value of the stock price associated with the entity, wherein each value of earnings per share is calculated at least in part using the formula: 
 
     
       
         
           
             
               EPS 
               = 
               
                 
                   DPS 
                   0 
                 
                 + 
                 
                   
                     
                       Earnings 
                       0 
                     
                     - 
                     
                       
                         N 
                         o 
                       
                       ⁢ 
                       x 
                       ⁢ 
                       
                           
                       
                       ⁢ 
                       
                         DPS 
                         0 
                       
                     
                     - 
                     Coupon 
                   
                   
                     
                       N 
                       o 
                     
                     + 
                     
                       Δ 
                       ⁢ 
                       
                           
                       
                       ⁢ 
                       
                         N 
                         eff 
                       
                     
                   
                 
               
             
             , 
           
         
       
     
     wherein:
 i) Earnings 0  equals the obtained value of earnings, 
 ii) N 0  equals the obtained number of common shares outstanding, 
 iii) DPS 0  equals the obtained value of dividends per share, 
 iv) Coupon equals the obtained value of coupon payments, and 
 v) ΔN eff equals the obtained change in the effective number of common shares outstanding, based at least in part upon each iteratively changed value of the stock price associated with the entity, 
 iteratively calculating, with the computer system, a plurality of values of earnings per share risk associated with the entity, wherein the values of earnings per share risk are based upon at least a plurality of different numbers of shares outstanding and an amount of earnings volatility; 
 recording, with the computer system, the calculated earnings per share values associated with the entity and the calculated earnings per share risk values associated with the entity; and 
 outputting, with the computer system, the recorded calculated earnings per share values associated with the entity and the recorded calculated earnings per share risk values associated with the entity. 
 
   
   
     2. The method of  claim 1 , wherein the entity is a public corporation. 
   
   
     3. The method of  claim 2 , wherein at least one of the calculated earnings per share values and the calculated earnings per share risk values is applied to a financial presentation relating to at least one of a balance sheet and an earnings per share metric. 
   
   
     4. The method of  claim 1 , wherein the iterations and calculations are carried out at least in part using a Monte Carlo simulation. 
   
   
     5. The method of  claim 1 , wherein the calculated earnings per share values and the calculated earnings per share risk values are plotted against one another. 
   
   
     6. The method of  claim 5 , wherein the plot of calculated earnings per share values versus calculated earnings per share risk values is credit adjusted. 
   
   
     7. The method of  claim 1 , wherein the economically reasonable analysis in light of market conditions takes into account a conversion premium associated with the convertible security. 
   
   
     8. A method implemented by a programmed computer system for characterizing earnings of an entity, comprising:
 obtaining, at the computer system, data associated with the entity including a number of existing shares, a value of earnings, a value of an equity dividend, a value of an attributed after-tax interest expense from a convertible security, and a number of attributed shares from the convertible security, which number of attributed shares reflects the possibility, based upon an economically reasonable analysis in light of market conditions including a value of a stock price associated with the entity, of conversion of the convertible security; 
 iteratively calculating, with the computer system, a plurality of values of earnings per share associated with the entity based upon the obtained data, wherein each value of earnings per share is calculated at least in part using the formula:
   EPS =dividend per share +retained EPS; 
 
 wherein dividend per share =the value of the equity dividend / the number of existing shares; and 
 wherein retained EPS =(earnings without taking effect of any interest expense from the convertible security minus attributed after-tax interest expense from the convertible security)/(the number of existing shares plus the number of attributed shares from the convertible security); 
 iteratively calculating, with the computer system, a plurality of values of earnings per share risk associated with the entity, wherein the values of earnings per share risk are based upon at least a plurality of different numbers of shares outstanding and an amount of earnings volatility; 
 recording, with the computer system, the calculated earnings per share values associated with the entity and the calculated earnings per share risk values associated with the entity; and 
 outputting, with the computer system, the recorded calculated earnings per share values associated with the entity and the recorded calculated earnings per share risk values associated with the entity; 
 wherein the iterative calculating the plurality of values of earnings per share is carried out by iteratively changing at least the value of the stock price associated with the entity. 
 
   
   
     9. The method of  claim 8 , wherein the entity is a public corporation. 
   
   
     10. The method of  claim 9 , wherein at least one of the calculated earnings per share values and the calculated earnings per share risk values is applied to a financial presentation relating to at least one of a balance sheet and an earnings per share metric. 
   
   
     11. The method of  claim 8 , wherein the iterations and calculations are carried out at least in part using a Monte Carlo simulation. 
   
   
     12. The method of  claim 8 , wherein the calculated earnings per share values and the calculated earnings per share risk values are plotted against one another. 
   
   
     13. The method of  claim 12 , wherein the plot of calculated earnings per share values versus calculated earnings per share risk values is credit adjusted. 
   
   
     14. The method of  claim 8 , wherein the economically reasonable analysis in light of market conditions takes into account a conversion premium associated with the convertible security.